In this revision presentation we cover key examples of pure and quasi public goods and consider the arguments for and against an increase in government spending on public goods.

1. Public Goods:
Key Evaluation
Points
A Level Microeconomics
(2019)

2. KEY ROLES FOR THE STATE IN A MIXED ECONOMY
Merit
Goods
Welfare
Services
Public
Goods
Regulation
NATURE OF ECONOMICS

3. The defining characteristic of a public good is
that, if it is available to one person, it can be
available to everyone at no additional cost.
Once the good is available at all, the marginal
cost of making it available to additional people
is zero. A good is non-rival if its use by one
person does not reduce its availability to
others, so it can be made available to another
person without cost.

4. PUBLIC GOODS
Sanitation
infrastructure
Flood defence
projects
Crime control for
a community
Reduced risk of
disease from
vaccinations
Freely available
knowledge e.g.
online learning
Public service
broadcasting
services
Irrigation
systems for a
community
National parks /
natural
environment
MARKET FAILURE

5. QUASI-PUBLIC GOODS
Crowded beaches
Toll roads and
bridges
Free Wi-Fi Busy urban parks
MARKET FAILURE
Quasi public goods are:
1. Semi-non-rival: up to a point, more consumers using a park or road do not
reduce the space available for others. But beaches can become crowded as do
parks/leisure facilities. Open-access Wi-Fi networks become congested slowing
down the speed for all users
2. Semi-non-excludable: it is possible but difficult or costly to exclude non-paying
consumers. E.g. fencing a park or beach and charging an entrance fee; or toll
booths

6. PUBLIC GOODS AND TECHNOLOGICAL CHANGE
Encryption devices
Smart Electronic Road
Pricing
Open Source Software Live Streaming of Events
MARKET FAILURE

7. Why are public goods important?
Important relationship
between investment in public
goods and long-term
economic growth and
development
Rule of law and protection of
property rights – important
for supporting innovation e.g.
the ability to commercialize
research
Technology needs public
goods - e.g. cars needs roads,
safety systems. Electricity
needs industry standards,
smart phones need property
rights on the spectrum
State can be an important
funder of ground-breaking
research (GPS, SIRI, touch
screen display, internet –
were all publicly funded)
Public good nature of new
infrastructure – impacting on
long run aggregate supply and
competitiveness
Public goods are crucial to
social welfare – many public
goods have no market price
and are not subject to the
profit motive

9. All sectors of
the economy
need public
goods:
Manufacturing
industry needs
Power, water
treatment
systems
Trust in banking
systems
Environmental
laws
Agreed and
enforced
industry
standards
Corporate law Day care centres
A literate labour
force
Physical
connectivity

10. Building the
case for an
increase in
government
spending on
public goods
Economies of scale – more efficient to provide at state
level leading to a lower long run cost per user
Access and affordability – absence of profit motive makes
public goods affordable – important for equity
1st order case for state provision if the market is missing –
government funding to overcome a market failure
Public goods drive long run economic growth and improve
basic development outcomes (fiscal supply-side policy)
Public goods can lead to higher private investment /
regeneration of economically-deprived areas
Low government bond yields – an opportune moment to
increase state investment

11. Risks and
drawbacks
from
increased
government
spending on
public goods
Absence of profit motive may lead to X-
inefficiency and diseconomies of scale – which
reduces the value per £/$ of extra spending
In countries with weak institutions, higher
government spending also linked with corruption
/ wasteful spending on “vanity projects”
In some cases, might be more efficient for the
government to fund but the private sector to
provide certain “public goods”
Market incentives might be better for promoting
innovation

12. Public Goods:
Key Evaluation
Points
A Level Microeconomics
(2019)